Fluor shares rally on profit report

Engineering company exits risky embassy-building business

By

LauraMandaro

SAN FRANCISCO (MarketWatch) -- Fluor Corp.'s stock jumped over 5% Tuesday, the day after the company reported a better-than-expected profit in the third quarter.

The company, which provides heavy engineering services like highway, refinery and building construction, late Monday said earnings fell 80% to $27.3 million, or 31 cents a share, after delays and higher costs from embassy projects dragged down results.

Fluor's
FLR, -0.38%
per-share profit for the most recent quarter topped the 12 cent loss expected, on average, by analysts polled by Thomson First Call.

Revenue fell 1.6% to $3.36 billion, under views of $3.86 billion.

Shares rose as high as 6.2% and closed up 4.2% to $81.19.

In a Tuesday morning conference call, executives at Irving, Texas-based Fluor stressed that they had put the worst of the embassy difficulties behind them.

The company replaced three levels of management in the division that builds these high-security structures and prohibited its government division from bidding on any new fixed-price projects.

"We do believe that we have the financial impact of the embassies behind us and we have exited that market," Fluor Chief Executive Alan Boeckmann told investors.

The company is also trying to recover some money from the U.S. State Department.

Biting into earnings, Fluor said it had set aside $133 million in provisions to cover losses at its U.S. embassy projects, mostly from Haiti. Fluor warned on Oct. 24 that civil unrest, labor shortages and poor soil conditions in that country were hiked costs and delaying construction on a U.S. embassy there.

It also encountered problems with its embassy-building projects in Jamaica and Kazakhstan. Elsewhere, Fluor took a $13 million charge from a construction project at the Bagram Air Force base in Afghanistan and a $22 million provision from building a highway project in California, where lower labor productivity than expected triggered higher costs.

Revenue from its government division fell 15.5% to $550 million, sales in its industrial and infrastructure group lost 6.6% to $800 million and revenue from oil and gas services construction fell 4.5% to $1.38 billion.

Profits also received a $13 million boost from its tax rate, compared with a $26 million income tax expense a year ago.

Outlook, backlog

The company, which recently won $300 million award to upgrade BP Plc's
BP, -0.55%
heavy-crude refinery in Indiana, said that it secured $4.8 billion in new awards during the third quarter. That's 89% higher than the year-ago quarter and included $2.9 billion in new oil- and gas-project awards.

Backlog rose 10% from the second quarter to $19.8 billion, or 35% higher than the year-ago quarter.

Fluor reaffirmed its late-October earnings outlook of $2.40 to $2.60 a share in 2006 and $3.50 to $3.80 a share in 2007.

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